How Investor Village Works

Security concerns at a social networking site like Investor Village are less about hacking or forfeiting personal information than being swindled by inept or purposefully misleading financial advice.

To register for Investor Village, you need to check a box agreeing to the terms and conditions of membership, also known as the user agreement. The user agreement makes it clear that the owners and administrators of Investor Village do not verify or endorse any opinions posted on the site. Therefore, they take no responsibility for the accuracy of the content provided by the site's thousands of members.

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The Investor Village user agreement emphasizes that members are not financial experts. Many of them are, to quote the user agreement, "'do-it-yourself' retail investors and/or traders with little or no training, education, experience or any other specialized knowledge of the markets, investing or other financial matters."

Investor Village administrators suggest that all advice and information found on the site should be considered with "discretion and skepticism." They encourage members to independently verify all tips before taking action that could be financially ruinous.

The Investor Village user agreement calls special attention to information on the site concerning small cap stocks. These types of stocks -- denoting companies that are generally worth $2 billion or less -- are much more susceptible to price manipulations.

The most popular price manipulation scheme is called a "pump and dump" operation. In this scam, a collection of self-proclaimed "experts" or "insiders" spread the news that a hot new stock is going to skyrocket over the next few days. As other people buy the stock, the price will naturally rise, lending an air of credibility to the tip.

Unfortunately, the bubble always bursts, often because the stock represents only the shell of a real company. As everyone starts to sell like mad, the price comes crashing back down. The perpetrators of a pump and dump scheme know the collapse is coming, of course, and wisely "dump," or sell, their stocks at the inflated price [source: SEC].

Investor Village does not routinely scan message board posts for illegal or abusive activity. Instead, the site relies on a self-regulating system in which users can flag messages that appear to break the user agreement. The site administrators say that they do their best to investigate all claims of abuse and take appropriate action.

As long as you're a cautious investor, there are a lot of advantages to joining a social networking site like Investor Village. Read more about them on the next page.